Asset Allocation – September 2017
The S&P 500 is up 14.3% so far in 2017 after advancing 2.1% in September, the eleventh consecutive month the index has registered a positive return. Emerging markets equities remain the best performing asset class YTD up 28.1%. The technology sector is the top performer in the S&P 500 up an impressive 27.4% while energy and telecom are the only two sectors in the red down -6.6% and -4.7% respectively. The energy sector benefited from renewed hope surrounding the reflation trade in September, leading all sectors up nearly 10% for the month. Small Cap energy, which we highlighted last month, surged 23% in September. In Canada, the Consumer Discretionary sector continued to be a market leader up over 17%.
S&P 500 Monthly Returns
The market backdrop is September was one of mean reversion. The year’s best performing investment themes took a breather in favour of the areas of the market that have lagged. Small Caps led the way in the US up 7.7% in the month but are underperforming large caps by 5.1% YTD. Value stocks rallied 3.8%, but lag growth stocks by 11.9% this year.
S&P 500 Value vs Growth
Commodities are the only asset class in the red down -2.9%, but this is the result of energy and agriculture weighing on otherwise large moves in industrial (+16.8%) and precious metals (+8.7%). Specifically, Copper is up 16%, Gold 11% and Palladium up 38% YTD. The move in industrial metals confirms the advance seen in emerging market equities this year.
While much of the 8% move in the Canadian Dollar has been attributed to rising rates and a stronger economy, I find that reasoning hard to digest when the Euro is up 12%, and the British pound and Australian Dollar are up 8%. Almost every currency we track, with the exception of the Turkish Lira and the Argentine Peso has advanced this year vs the US Dollar. While the move in the Canadian Dollar has been impressive, it appears to be more a function of a weak US Dollar.
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